How to Trick Yourself Into Retiring a Multimillionaire

about retirement savings. It's on our minds because the GOP is part of its new tax plan, briefly proposed capping contributions to four oh one K tax plans, and people heard that and freaked out. Yeah, right now, a lot of us have four own case with our jobs, and we mindlessly put in as much as we can tax free,

and we think that will be great our retirement. So when we see new knows that there's no longer going to be this tax free benefit, it just seems like it's going to ruin our whole lives when we're older. But when it comes to four oh one case, we are actually our own worst enemies. Most of us are really bad at saving for one case. I've become kind of the biggest vehicle for retirement savings in the US, pensions are dwindling, and we'll go away altogether pretty soon.

Probably our Social Security income for most people isn't enough to retire on. So we depend on these corporate plans, and yet most people are not contributing to them, even when they have the option. Yeah, so of course there are some employers that don't offer them. There was a startling statistic that I saw in a Bloomberg article that only four percent of companies offer them. That doesn't mean

that most people don't have the option. It's usually small employers that don't offer them, But that is so a few companies. I just think of it as this universal benefit at this point, but it's it's not. It feels like an advantage of going to work at a big company that like, you get your you get your nice retirement package for oh one k. Yeah, and most Americans do have the option. The same articles that that eight percent of Americans do work somewhere that sponsors some kind

of four OW one K like plan. But even so only make contributions to those plans. So even when your employer offers them, for some reason, people are not contributing, right, And we should say that in a lot of these plans. Your employer will match your contributions, so what you put in, they will put in the same amount, you know, up to a certain amount. So like, that's free money. And there must be people who just really can't shave anything

off their paychecks. But that's not everyone who's not contributing. So we should talk a little bit about the reasoning behind having access to basically this free money and not taking it. I have talked to people who are just out of school. They're young, and they're paying off a ton of student debt, and they're deciding between student debt and four oh one K, and they feel like they

can't put in. But then once you don't get in the habit of doing it, I think inertia is so strong that you just never do it, and then your ten years into your career and you missed out on all this great free money. I definitely felt that way when I was first starting out. The company that I started working out after college offered a match I think after a year or two, and so in the first year or two of working there, I thought, well, I'm not going to be getting the match, and I'm so

broke right now. My salary solo that you know, it's too soon to put it in. And then I ended up working there for five years and I never got around to signing up for the match, and I gave up that free money, and I didn't have any savings under my belt, you know, when I was like well into my twenties. I'm sorry, but that's the thing. It's like, when you're young, retirement feels so so far away that it feels like you'll always have time to get around

to it um. But not only is it bad investment not to start piling on like those early returns, it's, as you say, it's bad psychology because you get this inertia. You think I'll do it in two years when the match starts, or you know, I'll do it when my salary goes up and I start making a little bit more money. And then those things happen and you don't. You don't want to go back into the HR paperwork.

You don't want to make the phone call and figure out, like, you know, the fifteen minutes of work that it would take to like change these you know, make these adjustments on your paycheck. And I don't know, it's it's just crazy because it's the thing that could help us so much, and it's impossible for us to see the benefits in the moment. That's definitely my problem. I am have the best of intentions. I want to contribute to my phone, okay,

and I do and I always have. But sometimes I'll want to go in and check on it or figure I'm gonna raise my contributions, but I get stuck somewhere and like a paperwork hole or like on a website somewhere, and then I just give up and I forget about it. And then a year later, we're doing an episode on it,

and I'm like, I should start that again. Yeah, yesterday we said, as preparation for this episode, we would both take a look at what was in our four oh one case and what we have saved in social Security. And I didn't do it. I also didn't do it. And I think it's partly this fear of looking at money. Yeah, Like it's it's a scary thing in our culture, which we've talked about on the show. When I started at Bloomberg, I signed up for the four oh one K and

then I actually made some decisions about my investment. Like I thought, I knew enough to just like diversify my portfolio and leave it alone. And I I thought I was making good decisions at the time, but I don't know exactly what those decisions were, and I'm kind of scared to go back and look at them because what if they were really dumb and like I would have just been better off leaving it alone. Yeah, and definitely just ignoring it and not looking at it is is

going to change whatever bad decisions you made. Or that's what it feels like, right Like, if we don't look at it, it's not there. It's not there. And you said something a second ago that struck me, which was that sometimes you think about starting to look at this stuff and then you just you just kind of get you know, you get stuck in a paper work, Cole. Or it feels too inconvenient in the moment, because it's

this thing that just never feels urgent. Retirement to me feels really far away, and it feels just as far away as it did ten years ago. And I'm ten years closer to retirement, so it should feel a little closer. And I think this is true for a lot of people. It's just very hard to do something where the payoff is going to be decades away, and I think that's just human nature. I refused to say that this is a personal moral failing. Yeah, it's just hard to envision

even the sum of money I would need. There was another bloom regardicle about how much a million dollars would get you, and it was like not enough. And in my mind, I was like, how how could could not be enough? I understand, but I guess that's something I should know. Well, it's not a personal moral failing. It is kind of the way our brains are wired. We don't think about long term solutions. We think about short term gratification. But fortunately, behavioral economists are here to help

people are thinking about this stuff. They know human beings are not wired to make good savings decisions. Richard Faylor was just awarded the Nobel Prize for his work in the field. And they're doing all kinds of stuff to try and help us overcome the biases, these natural biases we have that keep us from saving and from just like making the obvious right choice. And we're going to talk to one of those behavioral economists right now. Our

guest today is Steve Wendell. He's the head of behavioral science at morning Star, which is an invested research firm. Why don't you explain to us a little bit about what you do and how you study human behavior and how you make recommendations based on that. We study the gap between intention and action. When people want to save for the future and save for retirement or invest in a in a thoughtful, diversive wide way, but yet they

struggle to actually do it. We study why that happens, and more importantly, what individuals and their advisors and our companies can do to help them do better. And we do this primarily through experiments, so formal randomized control trials that test if we try talking about retirement savings a somewhat different way, does that help people save more and really reach their goals? For example? And in general, why would you say we make retirement savings decisions, for example,

that are sort of against our own interests. So when I think about saving for the future, I really think about four distinct problems that we face. One is our biases, right are focused on the present, Our difficulty um planning for emergence, for emergency expenses, for regular expenses, etcetera. And that's the one. So many people focus on these biases,

but there's more. The second part, and I think often more important, is why we spend, why we find it difficult to control our spending and keep on to court budget. Third is why we don't always keep the money in the plans once we get it there, so why we often cash out when there's a job change, especially when it's when it's relatively small balance. And fourth, why we

don't manage the money and our plans very well. Why we think, okay, well, I just I'm saving enough that should be fine, and then we don't think about, well, am I contributing up to the max? And I panicking during downturns and pulling the money out, etcetera. So given this bias, we have to not think about the future. What are some of the common mistakes that people do make.

The most common mistake, of course, is that is that people don't plan for the future at or they don't plan for retirement savings, and they don't figure out how much they'll need, they don't actually put aside the money for it, etcetera. I think that's your first and foremost and nuts in our world. We call this the the present bias. Our natural focus on the present um, but there are many others. There are many others that come

into play as well. Similarly, we were not great at at um at plant and understanding how we're going to respond in the future. So we have a we have a planning fallacy, and that we think, Okay, I'm going to be you know, right now, maybe I'm not ready to save for retirement, but next year I'm going to be in a great position to do so. Well. Probably not. We don't forecast our own future behavior. We haven't forecast

the state will be in very effectively. So you mentioned earlier that your team has done experiments to try to test some of your theories and come up with recommendations to help people save better. Can you tell me a little bit more about some of those studies or experiments. Sure? Sure, So we've we were in a variety of different experiments to help investors, as I mentioned, close this um gap

between intention and action. One of the one of the simplest ones we've done, for example, in their in the retirement space is to show people all the work that's involved in calculating this retirement savings so that it isn't a proof magic number that comes out and says you should save this amount, but give them a sense of the of labor in the calculation that's involved behind the scenes, and we find that then that that calculation is more

trustworthy and they say, Okay, there's thought that's been gone into that's gone into this, even if it's even its computer thinking about it, and therefore let me myself think

about this more seriously. We did another study actually with our own employees, I should say, UM, where we in many cases people don't go in and change their contribution from the default because they forget because they're doing other things, and so we UM we did a reminder that that very clearly indicated hey, here's the deadline, here's the here's

the time required for it, UM. And we found that that was that was helpful to UM to get people who are in the finance industry and think about this all the time, just to spend a moment of time to think about their their retirement savings in their own company. That's such a small thing that seems to have such a huge impact. And also what the Nobel Prize and Economics basically was given to for. Are there other small things that companies are people can do to check themselves

into saving better. One, obviously is is on the company side, the order enrollment, great technique, very factive, probably the single most powerful thing that America has ever done to increase savings. We can also very explicitly use mental accounts. So actually, what as you mentioned sailor um one of the things that that he worked on in that the new that the Newel Prize Committee awarded him for in the in

the newbel for for Economics. So mental accounts is thinking about thinking about the money you're saving, not just as vaguely for retirement, but rather for specific purposes. This is the money I'm going to give to my children, This is the money that we're going to live off. This is the money that we're going to have that we're finally going to check off those items on the bucket list. Make it more real, make it more real, make it more vivid, give it a purpose. Those are some of

the many techniques. Let me give you a specific example and see what you have to say about it. Recca and I both have four O N case from previous jobs that we just haven't gotten around to rolling over. You're helping me understand kind of why that is we're focused on the president, there's no urgency around. It feels like too much work. What could we do to kind of force ourselves to take the steps we need to

do this? Obviously good savings decision first, I would say if it is a if it's a large balance and the plan from the previous employer is a good one, we don't always have to roll it over, right. In many cases, set it and forget it is a good thing. If the money being set aside means hey, you're not going to touch it and you're not going to um it's it's already past the phase where you might cash

where you might cash out on a job change. Great, But let's say you do want to to roll it over, as you mentioned, but you're just not quite getting there right, or we have this gap between one's intentions and one actions well as as you mentioned before, many of the techniques are are just really simple and obvious in hindsight. So one thing to do is you set a deadline. You say this is the day I'm going to do it.

I have to do it by this day. You put it on the calendar, so you set up a reminder, You set up a deadline, and you also do what's known as and this is slightly more exotic implementation intentions. As you're thinking about it right now and you're saying, ah, I wish I would finally get around rolling over this money. Take that moment to think through the steps that are required to do it. So, Okay, I'm going to have to go to this site, I'm gonna have to go

look up my password. If I don't remember my password, or if I can't find my password, I'm going to you know, I'll all the company. So it's especially the things that might get in your way, like not having the password at that moment, those are the ones you want to think through beforehand, because what it does is in the mind, it creates the script you can go off of that. Okay, tell him is hit Now it's

time to do the rollover. You're just executing these steps you've already thought through, and you can't and you don't hit a roadblock that says, oh man, I don't know the password. Okay, I'll just come back and worry about this thing later. So you're mentally working through all those obstacles beforehand. I hope that's helpful. Yeah, it feels so sort of sad to me that these little roadblocks like not remembering a password are enough to keep us from

making really important investment decisions. But you're absolutely right. It's things like that that just block you. Yeah, overwhelming, that's that observation is the Nobel Prize. Congrats, fantastic. So often we talk about what we can do to remind ourselves to say for the future, but then there's the phenomenon of freaking out about your savings. Now you're looking at the stock market and thinking, oh, like, what's happening to

my far oh? One K? So what are ways we can better set ourselves up to make good decisions in those moments? How do people stop from well destroying the money that they've They've saved so hard, And the biggest lesson is do what you can to not look, to

not check. Actually, one of one of Richard Sailor's original research in this field is on myopic loss version, which is the more often that you check your portfolios and hinted it with with traders so professionals, even the more often you check your portfolios or often you check your investments, the more it works your behavior in this case, the more it makes you loss a verse in many cases

more conservative in your trading. And so stay away. Don't don't feel that temptation to look, oh, how's my retirem planning, how's my retirementlan, how's it doing? All the time, it's terrible for you. UM. And you can replace that, right, it's it's not just a matter of self control. You can replace that with this particular expectation. Okay, I'm going

to look once a year. I'm gonna look whatever twice a year on this date specific and I'm going to look at the projection towards my goal, not at the price moving up and down, because that is very noisy and it's well, it's distracting. Instead, I'm going to look at how's the portfolio doing. UM. We find that certain vehicles do seem to help people stay on track. More so the target date funds that so many people are

defaulted into now UM. Previous studies have shown that that folks were less likely to panic and pull out their money during the during the eighth nine UH downturn. UM. And and some of that is because people were defaulted in, and some of that is because it's this expectation of set and forget it it's a vehicle where everything is taken care of. You just don't have to worry about it, you know, just don't have to watch it. Other techniques that you can use to help yourself stay on track

and not touch that money. One is to really take a value center approach that savings. That's vague. Yes we know it's important, but it's not really us it's not really vivid. Instead, right out, why retire? Why this retirement savings matters? Is it about your family? You don't want to be a burden on them? Is it because you want to give back? You want to give back to your community, You want to give back to your society. Is it um that you're finally checking off items on

your bucket list? Is it? Is it um the dreams of how you want to uh get these unique experiences with your spouse, Write those out, make it vivid, make it real, And then when you're tempted, go back and look at that description and say, well, do I do I really want to give up these things? Are these? Uh? These are the things that you know I don't care

about anymore? Probably not, because these are durable. These are the things that these are values and they're much more real to us than just I should really be saving for retirement. That's really helpful, um, because it's more about a frame of mind, I think, than you know, just a tip or a trick. And I want to ask you as a parting question, um, since most of us want to make the right decisions for our retirement, but obviously our minds are conspiring against us to keep us

from doing that. What's like the one most important thing to remember, the thing that we should keep top of mind as we're trying to, you know, get all these little things done. So ironically, I would say the answer is, um, don't try to keep it in mind, So automate as much as possible, remove yourself from the picture. So make a wise decision up front to save in in in a in a in a thoughtful, diversified way to save and improp it rate, and then play with your kids,

do your job, do other things. Most people aren't wired to think about the future, and especially their financial future all the time. We fundamentally aren't going to change human nature, look our own or otherwise. I can tell you I've tried for myself. Instead, we can change our environment. So our decision or once off decision can can pull us through this long time between now and retirement, right, we can set it and forget it. That I think is

the one overriding lesson. Yeah, it's like behaviorally easy to spend, behaviorally hard to see. Well, thank you so much for all your help in thinking through these things. Happy to happy to be here, and thanks so much for having me on the show. H m hmm. I don't know about you, but I feel a little bit better now about being such an dump me about investing in savings, because I feel like that's how we're wired. It's not my fault. It's just human nature. We're all like this.

It's not only that he told us that people are wired to be dummies. He was like, be a dummy, like set up the alerts. Yeah, do your thing, don't think about it too much. Um. Yeah. With regards to rolling over our for Owen care, are you gonna take his recommendation, Well, apparently I don't even have to, which brings up or I don't necessarily have to, um, which is another kind of interesting thing to think about. You and I talked about this before the show. We're like, oh,

we're four one please, We're so dumb. That we haven't rolled them over, and we both just assumed that the that was the right thing to do, because I don't know, it feels responsible. You hear about it in your orientation materials when you start a new drab, like here's how you roll over your four O n K. But sometimes like no decision is the is a fine decision. So maybe it's not that daunting because he talks about making that list of like, you know, what are the steps

that we need to get there? And for me, maybe the first step is just figuring out what for a one case I have floating out there and whether they're just find being left alone um or whether it makes more sense to roll them over. Maybe I'll just email him. I'll like find all the four O one case and I'll email them to him and let him tell me offload your problems to someone else. That's that's the thing

that we're supposed to do well. That is kind of the upshot, right, like stop feeling so bad about being bad about this stuff, like don't imagine that there's a future you that's going to be better about savings and better about retirement and four own case. Just accept that we're not really cut out for this kind of stuff and then do all the little things that you have

to do to trick your brain into getting better at it. Yeah, it's not to say that you shouldn't and best I remember when we had Salid cottack on, she was very aggressive about taking advantage of your company's for a one k and people should definitely do that. But once you've opted into that, I think it's like, then do as little as you can to maximize how much you said. Yeah, the obstacles to opting into things like that, the things have just I mean, he didn't call it laziness, but

that is kind of part of it. It's just like, oh, it feels like too much work. Even that stuff is psychological. So if we know that, we can just be like, Okay, I'm just gonna hack this so that I do it. I'm gonna set up a calendar appointment, I'm going to write a little list. I'm gonna do these things that are going to help me remember my password and get over my laziness about this. And and it's it's not my fault. I'm not so flawed. Well I am, but we all are. And now it's time for half bag

takes half fake takes. You can call us with your half big take, leave us a voicemail at two and too six one seven zero one six six. This week we have a listener on what to do at the end of emails. Hi Disilini from Massachusetts. My half take take is about email closing. Some people don't use them at all. Some people use the same generic ones like thanks.

Sometimes you'll see a fun one like cheers. But then even after your email closing, if you have a signature, do you write your name to make it personal or do you just use the name that's in your signature and send it kind of off generically. Thanks for the show, guys, Luckily for this listener. I am an expert on email sign offs or the authority on this wrote a very important piece on the sign off best saying best is

the worst and best Comma Becka Greenfield. I ever read that. No, I have very strong opinions on this and it's worked so well for me, and maybe listeners of the show already know this. But I do no email sign off, just my name, first name, and you know what, it's a power move. It feels so good. Wait, so you do have a sign off, but you don't have like a salutation like you say, you don't just say my name abruptly. Right, But then I think, once you've been

emailing for a little bit, you stopped doing that. Um, but yeah, just just your name. It's a power move. It feels great. There's no you don't need to we don't need the frills. We all know what's happening. I want to build. Yeah, I like it. You're like, I'm too important to be thinking about regards thanks a professional course? Why do I need to? What do I need to show my sincerity? Yeah? Try it out if you don't like it. I don't know best is okay, I know

I said it's worst. It's bad. I don't know. I'm a best person. I do say best. Sometimes I say thanks, but often I'll write it, erase it, write a sentence before I write my name. That basically gets that the fact that I'm thinking them. Basically, any sign off can be changed into a final sentence. No sign off. It's a bold let me know if you have any questions is a great one. Okay, okay, Becca, what is your half big take this week? My app big take is

you're using your weather app wrong. It has come to my attention that people look at their weather apps and it says high of sixty five, low forty three, and they're like, Okay, I'm dressing for it to be sixty five degrees out, but it's probably gonna be sixty five degrees out at twelve or one or two when you're inside your office building and you're really only outside between the hours of eight and ten and six and ten pm, and you need to check the hour by hour of

those hours, and that's the temperature for the day, which tends to be lower than the high. I'm guilty of this for sure. I think I use my weather app to help lie to myself. Like I hear like high of seventy and I'm like, great, it's t shirt weather. Meanwhile, it's gonna be seventy degrees for like fifteen minutes at noon, and like there's there's some other number. It's the weather app's fault. Really, like they need because an hour by hour like it can't be that accurate, right, so they

need to give us some other measure. That's like what is the mode? Isn't the mode the most common number and a thing? So it's like, what's the most common temperature that it's going to be. What you know, let's get rid of this high low from the day paradigm. Yeah, we need a whole I think we have an app idea. Okay, this is more than sorry, guys, we're quitting the podcast. We're going to become millionaires with our new weather app.

All right, Francisco, what's your half pig take? I have a lot of angst about what what's the appropriate time when you're coming in late, after which you have to email people that you're coming late, and also whom do you email? So like, to me, it feels like if it's going to affect somebody, like if you're gonna miss a meeting or something or be late for a meeting, then you you know, you email the people that it's

going to affect. But other people anytime they're going to be a little bit late in this office will email like their direct supervisor and five people that they work with, And I'm like, I couldn't care less that you're going to be late. But then also that kind of behavior gives me anxiety when I'm running a little bit late, because I'm like, should i'd be doing that? Should I be putting the whole office on alert that like they're gonna be seeing me fifteen minutes later this morning, so

they don't worry about me. What? Yeah, what is that move? Why? I mean, I'm a person about less accountability is best. I email as few people as possible about my goings on, update that calendar as little as possible. People a little mystery, But yeah, what is the What is the move of telling people you're going to be five minutes late? I think it's to say I'm usually not late. So this email shows how unaccustomed I am to being late and how on time I usually am. It's like, it's very performative.

If you see me walking in at nine thirty today, don't assume that that's sometime becomes every Meanwhile, nobody is thinking about these things except for that one really annoying person in every office who knows when everyone gets in. I have the opposite thought, where it's like, if I'm coming in at nine and thirty today, I'm gonna assume you think that I'm just running late. I mean probably most people are thinking nothing. You're right, nobody's thinking about

you ever. Yeah. No, that's a really good rule of thumb for life and this has been half big takes, half baked takes. Thanks for listening to game Plan. You can find me on Twitter at Francesca Today and I'm at rs Greenfield. You can tweet us your half big takes are call into our hotline at two on two six months seven year one six six. If you like our show, please go to Apple Podcasts or wherever you listen and just take one second to give us a review, rate us and subscribe, or just do one of those

three things even um. Every little bit helps get our show in front of more people. We also have a newsletter. If you want to get it, go sign up for it at Bloomberg dot com Slash Newsletters, click the game Plan box and then it's yours. This show was produced by Liz Smith and Magnus Hendrickson, Head of Podcasts is me. We'll see you next week. Ye. Behavioral economy is that the field economics economics? Okay,